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Al-Ahram Weekly 12 - 18 August 1999 Issue No. 442 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 12 - 18 August 1999 Issue No. 442
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Profile Books Features Travel Living Sports Time Out Chronicles People Cartoons Letters Ensuring greater savings
By Niveen WahishEgyptian Minister of Economy Youssef Boutros Ghali has been quoted in a report issued by The American Chamber of Commerce (AmCham) as saying, "Liberalisation of the insurance sector and the breaking down of the long-established state monopoly could lift domestic savings from their current level of 19 per cent of GDP to 25 -28 per cent."
Increasing savings is one of the government's top priorities.
The 13-page study outlines the main features of the insurance sector and analyses the industry's prospects.
A huge potential for growth exists in the sector, the study said. It could contribute to boosting Egypt's Gross Domestic Product (GDP) from its current level of 5.7 per cent to an estimated eight per cent.
With this in mind, the Egyptian government has set out to reform the sector. It has adopted a plan to curtail the public sector monopoly and open the market to competition from new local private firms and international insurance companies, the report points out. The reform involves privatisation of the four state-owned companies, which according to the study account for the majority of insurance premiums.
In 1998 a law was enacted allowing private ownership and 100 per cent foreign participation in Egyptian state-owned insurance companies on condition that no single investor owns more than 10 per cent of a company's shares without the approval of the Council of Ministers.
With these regulations in place, evaluation of the four state-owned companies is under way. The government plans to privatise one of the public insurance companies before the end of 1999, according to the report. However, it is not yet clear how the companies will be divested. It could be through a public subscription, or a private sale to an anchor investor or a combination of both. Each company will probably be dealt with as a separate case, the study said. The most likely scenario will be for the government to initially sell a minority stake while retaining the majority of shares.
Encouraged by the plans for reform, several new private insurance companies are being set up. These include the Commercial International Life Insurance Company (CILIC), a joint venture between the Commercial International Investment Company and Legal and General of the UK, which specialises in life insurance. Other newcomers are the Egyptian International Medical Insurance Company and Al-Ahram which offers general insurance. The American Insurance Group is also expected to start operating in Egypt, and French and Dutch companies are considering setting up operations in the country.
One possible reform mentioned by the AmCham study would be the elimination of barriers hindering private companies from competing for major government-related activities such as obligatory automotive insurance and the management of social insurance funds.
The government is already considering further deregulation of the sector. The Ministry of Economy is studying possible amendments to the law regulating operations of insurance companies to allow them to invest a significant part of their funds in the stock exchange and real estate, according to the study.
While opening up the insurance market, the reforms toughen supervision of the sector. The AmCham report says that all insurance companies are now required to publish regular financial statements approved by accredited auditors. And before any new company is allowed to operate, it is tested by a supervisory body to determine whether it will introduce new instruments.
These reform efforts are expected to raise insurance premium contributions to GDP from the current 1.1 per cent to four per cent. This compares with six to 12 per cent in industrial nations. The low figures in Egypt show "that there is very little public awareness of the importance of insurance and its benefits", the report said.
Another factor cited in the report that affects the operation of insurance companies in general, and life insurance in particular, is the "reservation within Egyptian society regarding the religious validity of the insurance activity itself and the belief in Islamic ideology that insurance is sacrilegious."
Increasing public awareness of the value of insurance is a priority in the government's plan to develop the sector. Only a small percentage of Egyptians appreciate the value of insurance and link it with the concept of investment in spite of the educational efforts of individual companies. The report recommends the use of media advertising and the organisation of seminars attended by both economic experts and religious figures.
In addition, Egyptian insurance companies need to expand the limited range of activities they offer in order to meet the needs of the large, diversified Egyptian market, the report said. Potential types of insurance that are not fully exploited by local companies include non-traditional instruments such as interest-sensitive life insurance and medical life insurance. Standard life insurance is also not fully exploited.
The study also said that better quality general insurance companies are needed. It predicted that this category will improve as the state-owned companies, which currently handle most general insurance, are sold. "Private participation is expected to increase the efficiency and depth in the market and encourage the level of domestic savings," the report concluded.
